11/13/2009 @ 1:13PM

Stop The (Health Reform) Juggernaut

Politics has been called the art of the possible. House Speaker Nancy Pelosi’s brand of politics might be dubbed the art of the execrable. Her health care juggernaut would not only create a massive entitlement program built on confiscatory taxation of businesses and individuals, but would also inhibit innovation by punishing industry more directly.

For example, after decades of life-saving and cost-cutting scientific innovations from innovative drug and medical-device companies, the government appears about to step in and stifle the research and development that is our best hope for improving health outcomes (and for a robust recovery from the recession).

Pelosi’s health care bill may cost the pharmaceutical industry $150 billion over a decade–nearly double the amount the companies conceded when they cut a White House-approved deal with Sen. Max Baucus this summer. By making fewer resources available for R&D, the bill will stifle innovation. It is a sure-fire prescription for fewer new life-saving drugs.

Democrats in Washington are out to cut health care costs at the expense of the research-intensive (as opposed to generic) pharmaceutical industry. Yet drugs often improve the span and quality of life in a remarkably cost-effective way. Innovative new drugs have helped many patients avoid costly hospitalization. From 1980 to 2000, the number of days spend in the hospital for every 100 people fell from 129.7 to 56.6, a drop of 56%–meaning that Americans avoided 206 million days of hospital care in 2000 alone, according to Medtap International, which provides health economics and outcomes-research services.

A study in 2000 sponsored by the Agency for Health Care Policy and Research concluded that increased use of a blood-thinning drug would prevent 40,000 strokes a year, saving $600 million annually. A 1997 study by the National Bureau of Economic Research found the costs of treatment per episode of major depression fell by 25% from 1991 to 1995, largely as a result of new medicines.

New drugs are also generally better than older ones at reducing mortality. In a study of patients who took drugs between January and June 2000, those who took newer medications were less likely to die by the end of 2002.

Yet Washington has grown increasingly hostile to the industry. R&D investments per new drug introduction nearly doubled between the early ’80s and early ’90s–but government approvals have been dropping. Even after drugs are approved for marketing, only about three in 10 recoup their development costs.

And now Congress is out to make the climate for new drug development significantly worse. The president has bragged that he intends to eke out huge cost savings at drug companies’ expense. “The pharmaceutical industry has already said they’re willing to put $80 billion on the table,” he said. “We might be able to get $100 billion out or more.” The industry was willing to “give” back its profits because it was told it wouldn’t have a seat at the negotiating table if it didn’t go along. It chose to play an inside game rather than to mobilize public opinion, although even a tiny fraction of drug company advertising diverted to that purpose could have exerted a significant influence.

But now Pelosi has set up her own “negotiating table”–nearly doubling the amount Washington would confiscate from the industry and planning vast new cuts in what Medicare would pay for drugs–a provision the industry was assured was off the other table. Give ‘em a hand, they’ll take an arm.

Another of the insidious solutions under consideration is redolent of H.L. Mencken’s quip that for every complex problem there is an answer that is clear, simple and wrong. It goes this way: If we want to spend less on drugs, why not just legalize a system to let us import cheaper drugs from Canada? This is a smoke-and-mirrors solution. In fact, there’s nothing intrinsically less expensive about drugs from Canada; it’s only that the government imposes price controls. If huge amounts of these lower-priced drugs began to be imported into the U.S., the drug companies would simply raise the prices in Canada in order to prevent drops in revenue. Abracadabra: End of savings!

Nor are the drug companies the only target. The Pelosi bill has $20 billion in “user fees” (read: taxes) on medical-device manufacturers. New devices such as artificial joints, pacemakers and insulin pumps are often developed by small start-ups–those least capable of bearing these punitive up-front regulatory expenses. And the working Senate bill aims to get $40 billion from the industry.

If the Obama administration and Congress slit the throat of the pharmaceutical industry, the patients–present and future–are the ones who will hemorrhage.